- Risk aversion dominates after cautious Fed outlook and amid fears of second covid-19 wave in US
- Risk off drags Australian Dollar (AUD) lower
- Safe haven US Dollar (USD) in favour, US jobless claims do little to boost mood.
- At 14:00 UTC, AUD/USD -1.2% at US$0.6913
The risk sensitive Australian Dollar has plunged lower amid growing fears of a second wave of infections and a cautious outlook from the Federal Reserve.
At 14:00 UTC, AUD/USD is trading over -1.2% at US$0.6913. This at the lower end of the daily traded range $0.6909 – US$0.7004. The Australian Dollar has wiped out all its gains from across the week and is heading for its first weekly decline in a month.
As expected, the US Federal Reserve kept rates at 0 and monetary policy unchanged. The Fed also gave a cautious outlook forecasting a -6.5% contraction in the US economy across the year and a long rocky road to recovery. In short, the Fed dashed any remaining hopes of a V-shaped recovery, dragging risk sentiment lower.
Adding downward pressure to risk sentiment are growing fears that a second wave of coronavirus infections are erupting in the US where hospitalisations are on the increase again in Texas, Florida and California. A second wave of infections would be a disaster for an economy which is just trying to reignite. As risk appetite declined, demand for the riskier Australian Dollar dropped whilst safe haven flows into the US Dollar picked up.
On the data front, Australian domestic data was disappointing. Consumer inflation expectations unexpectedly dropped in June to 3.3%, down from 3.4% the previous month and well short of 4.2% expectations.
US jobless claims data did little to boost the mood. Whilst both initial and continuing jobless claims continue to fall, they remain at elevated levels. Initial jobless claims fell to 1.5 million and continuing claims dropped very slightly to 20.9 million, down from 21.5 million. The numbers are declining more slowly than investors would have liked.
Looking ahead there is no high impacting Australian data due for release on Friday. Instead the Aussie Dollar will continue to be driven by sentiment.
US investors will look ahead to the release of US consumer confidence data tomorrow, which is expected to show a slight improvement in June.
